Bond Market Update

Post-NFP Gains Extended

• U.S. Treasuries climbed to begin the week with 10s and 30s adding to their big post-NFP gains from Friday while the short end started higher, but pulled back as the day went on. The 2-yr note started ahead after night that saw the release of a solid Q2 GDP report from Japan, a larger-than-expected trade surplus from China, and news that Japan's Prime Minister Ishiba resigned after just under a year on the job. In France, Prime Minister Bayrou's tenure ended at nine months after he lost a confidence vote that will prompt his resignation tomorrow. Treasuries added to their starting gains in morning trade with longer tenors rising past their highs from Friday. However, the short end found resistance after the New York Fed released its latest Survey of Consumer expectations, revealing a slight uptick in year-ahead inflation expectations to 3.2% from 3.1% while three-year and five-year expectations remained at 3.0% and 2.9%, respectively. There was another noteworthy element in the Survey, as the mean perceived probability of finding a job in the event of a sudden job loss dropped by 5.8 percentage points to 44.9%, a record low for the series that started in mid-2013. The observation about the weakening of the labor market contributed to an uptick in expectations for a 50-basis point rate cut on September 17 (to 11.8% from 11.0%), though that probability remains low. Crude oil inched up off its lowest level since early June while the U.S. Dollar Index fell 0.3% to 97.46.
• Yield Check:
  • 2-yr: -2 bps to 3.49%
  • 3-yr: -2 bps to 3.46%
  • 5-yr: -1 bp to 3.57%
  • 10-yr: -4 bps to 4.05%
  • 30-yr: -9 bps to 4.69%

• News:
  • President Trump said that Christopher Waller, Kevin Hassett, and Kevin Warsh are the three finalists for the Fed Chairman nomination.
  • President Trump signed an executive order exempting gold, tungsten, and uranium from tariffs.
  • China will reopen its bond market to Russian energy firms looking to raise funds, according to FT.
  • Swiss National Bank President Schlegel said that the central bank will not hesitate to act, but the bar for the next cut is high.
  • Italy's Finance Minister Giorgetti said that the government continues expecting 0.6% growth for 2025.
  • China's August trade surplus reached $102.33 bln (expected surplus of $99.40 bln; last surplus of $98.24 bln) as imports grew 1.3% yr/yr (expected 3.0%; last 4.1%) and exports rose 4.4% yr/yr (expected 5.0%; last 7.2%).
  • Japan's Q2 GDP expanded 0.5% qtr/qtr (expected 0.3%; last 0.1%) and GDP annualized grew 2.2% (expected 1.0%; last -0.2%). Q2 GDP Capital Expenditure was up 0.6% qtr/qtr (expected 1.3%; last 0.7%), Q2 GDP External Demand was up 0.3% qtr/qtr, as expected (last -0.8%), GDP Private Consumption was up 0.4% qtr/qtr (expected 0.2%; last 0.0%), and Q2 GDP Price Index was up 3.0%, as expected (last 3.3%). July Current Account surplus reached JPY1.88 trln (expected JPY2.60 trln; last JPY2.40 trln). July Economy Watchers Current Index rose to 46.7 from 45.2 (expected 45.6).
  • Australia's July Building Approvals were down 8.2% m/m, as expected (last 12.2%) and Private House Approvals rose 1.1% m/m, as expected (last -2.0%).
  • Eurozone's September Sentix Investor Confidence fell to -9.2 from -3.7 (expected -2.2).
  • Germany's July Industrial Production was up 1.3% m/m (expected 1.1%; last -0.1%), rising 1.5% yr/yr (last -1.8%). July trade surplus reached EUR14.7 bln (expected surplus of EUR15.7 bln; last surplus of EUR15.4 bln) as imports fell 0.1% m/m (last 4.1%) and exports were down 0.6% m/m (last 1.1%).
  • Spain's July Consumer Confidence rose to 82.9 from 76.1.
• Today's Data:
  • Consumer credit increased by $16.0 billion in July (Briefing.com consensus: $10.5 billion) following a downwardly revised $4.3 billion decline (from +$7.4 billion) in June.
    • The key takeaway from the report is that the expansion in consumer credit was driven by revolving credit, which saw the largest jump since January 2024. That might be construed as a sign that consumers are using credit cards more to fund everyday purchases in the face of higher costs, but noticing the jump in nonrevolving credit in July suggests that may not be fully accurate in a broad sense.
• Commodities:
  • WTI crude: +0.6% to $62.25/bbl
  • Gold: +0.7% to $3677.90/ozt
  • Copper: +0.2% to $4.56/lb
• Currencies:
  • EUR/USD: +0.4% to 1.1762
  • GBP/USD: +0.3% to 1.3552
  • USD/CNH: UNCH at 7.1220
  • USD/JPY: UNCH at 147.45
• The Day Ahead:
  • 6:00 ET: August NFIB Small Business Optimism Index (prior 100.3)
• Treasury Auctions:
  • 13:00 ET: $58 bln 3-yr Treasury note auction results